ETF Trends, Patterns and Setups – Cyclical ETFs Lead with New Highs, Big Techs Perk Up, High-flyers Remain Subdued (Premium)

There are plenty of strong pockets in the stock market with several cyclically oriented ETFs hitting new highs and large-cap techs coming back to life. This month we are seeing new highs in ETFs related to industrials, materials, housing, semiconductors, transports and steel. We are also seeing some big moves in ETFs dominated by large-cap tech. The Consumer Discretionary SPDR hit a new high and I consider Amazon, its biggest holding, a large-cap tech stock. The Nasdaq 100 ETF and Technology SPDR are also leading the last four weeks and they are dominated by large-cap techs.

The broad market environment remains bullish, but we are already seeing some pretty big moves from the March lows. This means some ETFs are getting extended and in the trend-monitoring phase. There were lots of setups in the second half of March and these matured quite quick with big moves the last two weeks. The setups this week are more towards the bottom of the list. We are seeing fresh breakouts in the Copper Miners ETF and DB Agriculture ETF (DBA), and a bullish continuation pattern in the DB Base Metals ETF. The high-flying ETFs are still lagging because several did not make it above their mid March highs. These are near the bottom of today’s report.

But first…the results of the chart layout poll are as follows:

  • 35% choose for the three chart layout with the line-DOT chart
  • 41% choose for the three chart layout with a BAR chart
  • 25% choose for ONE big bar chart

The results show a preference for the bar chart, especially when accounting for the 25% who prefer just one big bar chart. As such, I will use a three chart layout with a big chart. Thanks for your feedback!

You can learn more about my chart strategy in this article covering the different timeframes, chart settings, StochClose, RSI and StochRSI.

Uptrend, New High, Leading


We will start out with the S&P 500 SPDR because large-caps are leading the latest advance with a strong move off the early March lows. Overall, SPY broke out of a big triangle consolidation in early November and then worked its way higher in a zigzag fashion. The green-red line on the bar chart is the zigzag set at 4%, which only shows moves that exceed 4%. The advance from late October to late January (58 bars and 19.6%) occurred without a 4% pullback. Since the 3 bar 4.6% pullback into early February, the swings are getting bigger and this suggest that volatility is picking up. The current swing is +9.5% in 22 bars (trading days).

The long-term, medium-term and short-term trends are all up for SPY. The only negative is the overextended nature of the current advance. This is not much of a negative because it takes strong buying pressure to become overextended. I would not be chasing here because volatility is picking up and SPY is up almost double digits. The setups and signals occurred in March and we are now in the trend-monitoring phase. This is the time to consider an exit strategy: ride the uptrend until it reverses, set profit targets on positions, take some money off the table and/or set trailing stops. The candlestick chart shows the ATR Trailing Stop (red line), which is 2 ATR(22) values below the highest close since the mid March breakout.

The Communication Services SPDR (XLC) surged to a new high and was led by Facebook, Alphabet, T-Mobile and the video gaming stocks (TTWO, ATVI, EA). The bar chart shows a triangle breakout in November and flag breakouts on January 20th and March 10th. XLC fell back hard after the last flag breakout, but held support and reversed with a hammer breakout on the candlestick chart. Facebook is up over 20% since early March and Alphabet (GOOGL) is up over 10% the last two weeks. These two account for around 46% of the ETF.

Semiconductors are also leading as the Semiconductor ETF (SOXX) hit a new high. Note that the Semiconductor SPDR (XSD) is around 8% below its February high. SOXX is weighted by market cap and XSD is equally weighted. This means large-cap semiconductors are leading smaller semiconductors. On the bar chart, SOXX was hit hard in late February and early March, but rebounded sharply and broke out of a flag last week.

You can learn more about ATR Trailing stops in this post,
which includes a video and charting option for everyone.

Cyclical Groups Hitting New Highs


The Steel ETF (SLX) and Transports ETF (IYT) both hit new highs this week and are leading. Strength in IYT is driven by FedEx (FDX), UPS (UPS) and three railroads (NSC, KSU, UNP). These five account for 50% of the IYT and all three rails hit new highs. Overall, SLX and IYT are cyclical groups and strength here bodes well for the economy. We are also seeing new highs in the Industrials SPDR (XLI), Materials SPDR (XLB) and Home Construction ETF (ITB). The green arrows on the chart below show IYT, SLX, XLI and XLB with double digit advances since early February. These moves reflect strength and the trends are up, but they are getting extended again and in the trend-monitoring phase.

Consolidation Breakout, Follow through, New High


The Real Estate SPDR (XLRE), REIT ETF (IYR), Home Construction ETF (ITB) and Residential REIT ETF (REZ) sport consolidation patterns into January and breakouts in mid January. They corrected from mid February to early March and then moved to new highs over the last few weeks. The first chart shows ITB with the vertical green line marking the consolidation breakout in mid January (bar chart) and the candlestick chart highlighting the flag breakout in early March. ITB is up over 20% from its early March low and strong, but also getting extended and ripe for a rest (trend monitoring phase).

The next chart shows the Residential REIT ETF (REZ) with a channel breakout on the bar chart and two pullbacks on the candlestick chart. REZ is up over 15% since early January and also getting extended. The last candlestick breakout is holding with the green shading marking the breakout zone, which can be used for a stop-loss.

Consolidation within Uptrend, Breakout


The Water Resources ETF (PHO) and Global Auto ETF (CARZ) consolidated within their uptrends and have breakouts working. PHO broke out and hit a new high this week. CARZ broke above its March high on Monday and then fell back a bit. Overall, a consolidation within an uptrend is a bullish continuation pattern and these breakouts argue for a continuation of the bigger uptrends.

You can learn more the StochClose indicator and strategies in this post.

Uptrend, Near March High


ETFs in this group are in uptrends overall with new highs in March. They also bounced the last two weeks, but have yet to exceed their March highs. This means they are lagging a little, but I would not read too much into this because the trends are clearly up.

A lot of people are pointing to a possible head-and-shoulders in IWM, which is shown in the lower left window. I would take exception with this assessment for several reasons. First, the long-term trend is up. Second, we are in a bull market. Third, the pattern is far from complete and price remains well above neckline support. Fourth, this is IWM and small-caps do not often play nice with chart patterns. Some analyst are also pointing to the importance of volume, but I gave up on using exchange volume a long time ago because of dark pools, high frequency trading, options expiration and the outsized influence of low priced stocks with high volume.

Feb-Mar Correction, Breakout, Strong Follow Through


The Nasdaq 100 ETF (QQQ) and Technology SPDR (XLK) are leading since early March. Even though they have yet to record fresh 52-week highs, these two exceeded their mid March highs, which is something IWM did not do. QQQ and XLK are in a lower group because they recorded 52-week highs in February and IWM recorded a 52-week high in March. The bar chart below shows QQQ with a sharp correction that retraced 50% and formed a falling channel. QQQ then broke out with a surge in mid March, formed a smaller flag and broke out again last week. The red line on the bar chart shows the ATR Trailing Stop for reference.

Short-term Breakout within Medium-term Pattern


The next chart shows the Mobile Payments ETF (IPAY) with a short-term breakout within a medium-term bullish pattern. Keep this setup in mind going forward. The long-term trend is up and IPAY consolidated within that uptrend with a triangle. The late March decline below 66 marked the downside within this pattern and provided the short-term setup. IPAY broke short-term resistance on the candlestick chart and RSI broke out of a W pattern. These moves reversed the short-term downswing within the pattern and provided a signal to get a jump on the bigger pattern. A break above 71 would end the triangle consolidation and signal a continuation of the bigger uptrend, but the reward:risk proposition would be different at that stage.

Falling Channel/Wedge Correction, Breakout


The next group of ETFs corrected and are still in the midst of corrections. The Healthcare Providers ETF (IHF) corrected with a falling channel and broke out in mid March, the Medical Devices ETF (IHI) corrected with a steep channel and broke out in late March, and the High-Yield Bond ETF (HYG) corrected with a falling wedge and broke out in late March.

The next chart shows the Healthcare SPDR (XLV) retracing about half of the advance from late October to mid February and then breaking out of a channel in mid March. The candlestick chart shows XLV breaking out of a bull flag last week and stalling the last six days with another flag-like pattern. A breakout at 118 would keep the move going.

Falling Channel/Wedge Correction, Breakout

$Copper, COPX, DBB, DBA

The next chart shows Spot Copper ($COPPER), the Copper Miners ETF (COPX), the DB Base Metals ETF (DBB) and the DB Agriculture ETF (DBA). Note that DBB is 1/3 copper, 1/3 zinc and 1/3 aluminum. The charts on the left show Copper and DBB consolidating with triangles and narrowing Bollinger Bands. Copper broke above the triangle trendline and then fell back. Watch for a second break above Monday’s high and a DBB breakout.

The upper right chart shows COPX with a falling wedge breakout and the ATR Trailing Stop set 3 ATR(22) values below the highest close since the breakout. The lower right window shows the DB Agriculture ETF (DBA) with a breakout this week and the same ATR Trailing Stop for reference. Overall, we are seeing strength commodities related to industrial metals and agriculture.

Uptrend, Below March High, Short-term Laggard


The energy and bank related ETFs are off my radar at the moment. Energy is off my radar because these ETFs are very extended and oil is running into a major resistance zone. The line chart in the upper right shows spot crude hitting resistance (red zone). The bar chart shows USO with an outsized decline and the candlestick chart shows a consolidation after this decline. Technically, we can watch these boundaries for the next directional clue on oil and energy-related ETFs.

The Regional Bank ETF (KRE) looks similar to the Russell 2000 ETF with a weak bounce the last two weeks. The overall trend is up, but I see overextended conditions and do not see a setup right now.

Deep Correction, Held 200-day, Broke March High


The next three groups represent 15 ETFs that experienced deep corrections from their February highs to their March lows. All 15 are above their rising 200-day SMAs and still in long-term uptrends. Big advances give way to big corrections. They all bounced from early March to mid March, fell back to some degree and then bounced again the last two weeks. ETFs in this first group exceeded their mid March highs and are leading the others. ETFs in the second group did not exceed their mid March highs and are lagging the first group. ETFs in the third group barely bounced and are lagging overall. ETFs in this last group, however, have short-term resistance levels to watch for breakouts.

The first chart shows the Video Game eSports ETF (HERO) with a flag-like breakout last week and a move above the mid March high this week. The green shading marks the gap and a strong gap-surge should hold. A close below 31.40 would warrant a re-evaluation. The second chart shows IGV with similar characteristics and a re-evaluation level at 341.

Deep Correction, Held 200-day, Did Not Exceed March High


The next charts show the Cloud Computing ETF (SKYY) and Cybersecurity ETF (CIBR) with the green zones marking the re-evaluation levels.

Deep Correction, Held 200-day, Weak Bounce


The next chart shows the Clean Energy ETF (PBW) with a break above the February trendline last Thursday and no follow through. Also notice that RSI did not get back above 50 on this bounce and the momentum cup is half empty still. The candlestick chart shows the gap zone and a close below 94 would warrant a re-evaluation.

Consolidating within Uptrend, Lagging Short-term


The cannabis ETFs are also struggling because the Alternative Harvest ETF (MJ) and Pure Cannabis ETF (YOLO) bounced just two days last week and then fell back pretty hard. The chart below shows YOLO with a 200% advance and then a 33% decline that retraced around half of the prior advance. A triangle is taking shape and a break above last week’s high would be bullish.

Downtrend, New Low Early March, Firming Perhaps


The Gold SPDR (GLD) is in a downtrend and one of the weakest ETFs in my universe right now. There are, however, signs of firming within this downtrend. The line chart on the upper right shows GLD retracing around 2/3 of its prior advance and finding support near a prior consolidation (blue zone). The bar chart shows GLD establishing support in the 157-158 area with two bounces since March. Also notice that a bullish failure swing formed in RSI and RSI hit its highest level since early January. Thus, momentum is improving and a short-term breakout could be brewing.

Downtrend, New Low mid March, Small Bounce


The 20+ Yr Treasury Bond ETF (TLT) has been positively correlated with gold for a while now and we can see TLT also firming the last few weeks. The long-term trend is down and the best I see is an oversold bounce that could retrace a portion of the prior decline.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
Choose a Strategy, Develop a Plan and Follow a Process

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